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General Motors has temporarily suspended share buybacks and warned investors that its previous annual guidance can no longer “be relied upon” owing to the uncertainty caused by Donald Trump’s tariff war.
The US auto industry has been lobbying hard for a reprieve after the US president imposed a 25 per cent tariff earlier this month on all imports of foreign-made cars, excluding some exemptions for Mexico and Canada. A separate 25 per cent levy on parts is also due to take effect from May 3.
In January, GM said it was expecting to report adjusted operating earnings of between $13.7bn and $15.7bn for the full year, with net income between $11.2bn and $12.5bn. It said at the time that the guidance did not account for any policy changes the administration might make on tariffs.
The company said on Tuesday it was abandoning that outlook, as it reported a 9.8 per cent drop in first-quarter adjusted profits, and was not yet able to calculate the impact of the tariffs owing to their “evolving nature”.
“We believe the future impact of tariffs could be significant,” said chief financial officer Paul Jacobson. “We have temporarily suspended any buyback activity until we have more clarity.”
Carmakers in the US are set to be hit hard by tariffs, with almost half of vehicles sold in the country imported from other countries, triggering intense lobbying from the sector. The Financial Times reported last week that Trump was planning to spare auto groups from some of his most onerous tariffs, such as those on steel and aluminium — in a so-called “destacking” of the duties.
Following further news reports on Monday, GM delayed its analyst call that was scheduled for Tuesday until Thursday.
GM chief executive Mary Barra said: “We believe the president’s leadership is helping level the playing field for companies like GM and allowing us to invest more in the US economy.”
GM reported adjusted earnings of $3.5bn before interest and tax in the first quarter, down 9.8 per cent year on year, on a 2.3 per cent rise in revenue to $44bn — slightly higher than the average analyst estimate, according to S&P Capital IQ.
The decline in profits came even as US car sales surged 17 per cent during the first quarter as consumers stampeded to dealer showrooms to buy ahead of the tariffs. Analysts estimate the latest levies could raise the price of a new vehicle between $4,000 and $10,000, depending on the model.
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GM is widely considered the Detroit Three carmaker most exposed to the tariffs because of its wider operations in Canada and Mexico. It makes about half the vehicles it sells in the US in the two neighbouring countries, including its popular Chevrolet Silverado pick-up truck. It also imports vehicles it sells in the US from South Korea.
To mitigate the tariffs, GM has said it plans to increase production of full-size pick-up trucks at its assembly plant near Fort Wayne, Indiana by about 50,000 units a year.
Bernstein analysts expect the tariffs to start impacting financials from May for vehicles and June for parts as inventories wind down, culminating in a $4.5bn hit to GM’s ebit next year.
